Among the first of the New Year’s resolutions received at Agitator Global HQ was one from Peter Maple and his Association of Grumpy Old Fundraisers who know stuff.

Recalling the fundraising meltdown in the UK triggered by the Olive Cooke affair and the flood tide of negative publicity, which was then followed by the ebb tide of accusations and calls for reform, Peter asked: “Is it all OK now? Safe to go back into the acquisition water? To, shall we say, ‘carry on fundraising’?”

He answered the question: “Somehow I don’t think so. We need, I believe, a new mindset.”[Emphasis mine]. Then he went on summarize what I firmly believe is at the heart of many of the sector’s problems — not only in the UK, but everywhere:

Most fundraisers and their boards simply don’t understand the value and necessity of money and how to employ that investment wisely in building, growing and sustaining a base of donors.

In Peter’s words: “Fundraising, simply, has to be about investment. Fundraisers have to develop relationships — and that doesn’t mean converting one-off givers to a direct debit. Chief Executives and Trustees are to blame for the short sighted, transactional fundraising that has taken over from all the all he supporter development programmes.”

And so Tom and I figured that the start of this new year we should, well, start at the beginning. The ‘beginning’ being the process of ‘donor acquisition’ in the context of ‘investment’. Not just how much investment does it cost to ‘get’ the initial gift, but what kind of investment — in money, time, skill and innovation — is really required to make the most of that ‘acquisition’ for the long haul.

Thus, this first installment of the Agitator Donor Acquisition Series, with a focus on a fundamental investment metric: Life Time Value.

There’s no question in my mind that a great deal of the furor on the part of the regulators, the press, regulators and many nonprofits themselves stems from near absolute ignorance.

Ignorance about what ‘acquisition’ of a donor or a gift is, how it should be measured, and when or whether its costs and techniques should be considered acceptable. (In the first posts in this series I’m going to deal mainly with ‘costs’; I’ll get to ‘techniques’ later on.)

Because the acquisition of new donors is essential to maintaining and growing virtually every organization, most fundraisers need to get much better at both understanding and explaining this essential process. The alternative is continued ignorance on the part of the watchdogs, implied scandal on the part of the press, panic and finger pointing in the boardroom, and angry, turned-off donors.

First, let’s take a coffee break.

What if I told you Starbucks spends $1,400 to acquire a customer who starts off by spending $4.25 for a Caramel Frappacino®.

You’d say Starbucks is foolish — until you learned that the 20 year Life Time Value of a Starbucks customer is $14,099. That’s why, for the same reason, Amazon spends $240 to acquire a customer for its $69 Kindle … why insurance companies pay more than 100% of the first year’s premium to acquire a policy holder … and on and on. If consumer companies didn’t invest this way — plus make the additional investment required to hold on to these new customers and convert them to long-term, committed customers — they’d be out of business.

The same holds true for virtually all charitable and advocacy organizations. Failure to invest substantially in the acquisition of new donors and new members required to replace attrition and/or insure growth is a certain prescription for extinction.

After all, donor acquisition is the well-spring, the feeder track, the seed corn (call it what you will) of a long-term financial development process that, if properly measured and executed, leads to highly profitable monthly giving (somewhat akin to 5 Frappacinos® a week?) … mid-level giving … upgrading to major gifts … and eventually to sizeable bequests and other planned gifts.

Each of these programs adds to the Life Time Value of a donor base. In short, it is the profitable returns from these post-acquisition programs that provide the funds needed to move the mission forward.

Put another way, an organization might ‘lose’ $50 over and above the amount of a newly acquired donor’s first gift, but in subsequent years that $50 investment should produce a mighty substantial return. In most cases a return far, far greater than any returns produced by the organization’s certificates of deposit or endowment. [For a fuller discussion of the results from fundraising vs. results from endowments and CDs see the Agitator post on the Endowment Paradox.

Only by calculating the fundamental metric of Life Time Value for your organization will you have what you need to design and steer an effective, productive acquisition program.

Do you know the 3, 5, 10 or even the 20 year Lifetime Value of your donors or members?

Roger

P.S.  In the next post in this Acquisition Series I’ll go into more detail on why the Lifetime Value metric is so important. Why and how it should guide not only your acquisition decisions, but all of your fundraising planning and investment decisions.